In this episode I introduce an excellent pre-IPO opportunity for investors, as well as talk about flexing your philanthropy  muscle. This is a meaty one! Tune in!



About Indestructible Wealth: I’m Jack Gibson. I’m your wealth strategist and I’m here to help you make some money. The Indestructible Wealth Podcast is for young entrepreneurs who want to make, keep and grow wealth to enjoy now, and for years to come.

Episode #40 – Invest into Pre-IPO Real Estate with 16x Potential Returns

Transcription:

Many of you are interested in getting Stage 3 of the Wealth building process into action.   As a reminder, Stage 1 is invest into yourself to amplify your earning power, stage 2 is to hyper focus on building your cash flow producing business or side hustle, and stage 3 is to take that income and invest into cash flow producing assets.   I know it’s a bit overwhelming on where to start, especially if you’re still working with limited starting capital.   Here’s a great opportunity for you to invest into cash flow producing real estate from a proven company, for as little as $1,000.   

Here’s a broad overview of how this works, and then I’m going to dive into the details.  

Step 1)  With $1,000 or more you can buy shares and own a piece of our Real Estate Investment Trust (REIT)
Step 2)  Their portfolio of properties generates rental revenue from our creditworthy tenants.
Step 3)  They pay you cash dividends from the rental revenue they collect

RAD Diversified is a nontraded, Public Real Estate Investment Trust (REIT). Since they are not publicly traded, the value of their shares is completely unaffected by the day-to-day fluctuations of the stock market.   RAD Diversified has developed a proven, reliable system for investing in residential, multi-family properties in key real estate markets across the US. They not only focus on residential properties, but also invest in farmland, like their Survivalist Project, and commercial real estate. They offer Investment Partners the opportunity to invest in cash-flowing properties with substantial value-add opportunities.

  • RAD Diversified has produced a 33.514% return in the last 12 months
  • Return since inception at 47.8%
  • 2020 36.7% annualized return

There’s only 1 downside that I can see, and I haven’t found an investment yet that doesn’t have a downside.   This is not a liquid investment, meaning once you buy in, you’re in, and until the company goes public, you are not able to sell your shares.   However, if you approach investing the way I do, this doesn’t matter because you are buying in with a minimum 5 year hold time, with the plan being 10 years.   

Interested?   Listen on, I’m going to dive into the details now.     

A True Wealth Creator

Some of the greatest fortunes of all time have their roots in real estate. Monarchs, conquerors, and the elite owe much of their wealth to it. And in the modern day, people like Donald Bren, Stephen Ross, and Donald Trump built their dynasties on it. Those dynasties are still appreciating in value today.

Done correctly, real estate is a tried-and-true wealth creator since time immemorial. And with the advent of the public stock market, investors were able to buy into real estate funds and ride the coattails of savvy investors and operators.

Getting involved with these companies allows investors to have exposure with the click of a mouse. And without the hassle of owning and caring for physical property.

The problem is,  the time to get involved for maximum gains is before a company goes public. And until recently, that was nearly impossible for main street investors.

From the Slums of Chicago to Sunny California

Dutch Mendenhall came from humble beginnings. He grew up in a small suburban home with two alcoholic parents. Early life was tough – and Mendenhall committed himself headlong into a promising career in baseball.

He was able to build a career in the sport, and ultimately became a college baseball coach. But the pay wasn’t great… and Mendenhall yearned for more.

One of his best players, Aaron Poreda, went on to play for the Chicago White Sox. On a trip to the Windy City to watch him play, Mendenhall decided to invest in some beaten-down real estate not far from Comiskey Park (now Guaranteed Rate Field).

The price was cheap, and the seller was eager. So in no time, Mendenhall found himself the proud owner of a three-bedroom home on the Southside of Chicago.

As soon as he received the keys, an excited Mendenhall drove over to take stock of his new purchase. As he rounded the last turn to his new investment property, he did a double take.

Across the street was a boarded-up home with small slits cut into the windows – what Mendenhall later found out was a notorious crack den…

Under the watchful gaze of the drug house guards, Mendenhall pulled into the driveway of his new purchase. After battling with a busted lock, he walked into a dilapidated home.

The place was in shambles. And the copper piping had been stripped, leading to a massive flood in the basement. It would need a major overhaul before it would ever make a worthy resell.

This was Mendenhall’s rough start in the real estate business.

In time, Mendenhall found a local partner to handle the renovations. And after dumping time and capital into the rehab, they were ultimately able to sell for a profit.

It was a tough lesson to learn. And Mendenhall learned it the hard way, by throwing himself in head-first with no experience and little research.

But he also saw opportunity. And in no time, he was hooked on the idea of finding value where others saw disaster – and that’s how the RAD Diversified REIT was born…

Building an Empire

After the successful flip in Chicago, Mendenhall focused his efforts on flipping homes in markets like Southern California, Philadelphia, and Texas. He also expanded into tax liens and deeds, as well as commercial property acquisition and management.

He was particularly active during market downturns like in 2008–2009 and in 2020 during the COVID-19 pandemic – which became a banner year for RAD on the heels of its innovative American Survival Project (ASP).

With this deal, investors are able to buy or lease one-acre tracts from RAD throughout the U.S. These tracts contain shelter, water, food, and safety. And they appeal to those who desire a bolt hole in the event of any kind of public scare or pandemic.

To continue his momentum, Mendenhall launched a Regulation A+ campaign in October 2019. This opened RAD’s doors to mainstream investors… and allowed them access to Mendenhall and his team, and their unique approach to the real estate market.

Last year, RAD generated a 36.7% annualized return – twice that of the S&P 500’s 16.2% return. And we see shares climbing 300% higher over the next 36 months – and 1,500% higher over the next five years.

Not only that, RAD is one of the few Regulation A+ pre-IPO deals that pays a guaranteed distribution of 5% per year via an amendment it filed during COVID-19.

We also see a short-term catalyst on the horizon that could send shares higher in the next 30–60 days. This is also very rare… Because for the most part, Reg. A+ share prices tend to remain static until the round closes and a new round opens.

With RAD, it’s able to stair step its share price higher as the underlying value of its real estate holdings increases. To understand the dynamics, as a refresher, Regulation A+ deals let private companies raise funds from everyday investors. We call these offerings “pre-IPO deals.” Qualified companies post their opportunity online, and investors can choose whether to entrust the project with their money.

RAD is looking to raise $50 million through its Regulation A+ offering. When I bought in 2 months ago, it was selling shares at $15.66 with a $1,000 minimum investment. So with a minimum purchase, you could buy 64 shares for $1,002.24.  

RAD is doing two things that we’ve never seen another pre-IPO company do. It’s readjusting its share price quarterly based on its underlying  value, and it’s guaranteeing yearly dividends.

See, RAD is a real estate investment company. So most of its value is in the form of real estate… And that’s pretty straightforward to appraise.

So every quarter, RAD reappraises its portfolio of properties to find its value. Then, it divides that value by the number of shares outstanding… And that’s its new share price.

Let’s use a hypothetical example. Say RAD bought one home for $250,000 in April. RAD puts $25,000 into the home. And in June, it appraised for $300,000. The value of that home has appreciated 20%.

If that was the only property RAD owned, its shares would also appreciate 20%. If RAD’s shares were $10 a piece in April, they’d now be $12 in July. Early investors would have a 20% paper gain, and investors coming in after July would be buying at $12 per share.

Now, that’s just a hypothetical example. RAD holds over 240 properties. RAD also uses strategic leverage (debt) to put a small amount of money down and borrow the rest through a mortgage when it finds compelling properties. This increases gains exponentially (more on this in a moment).

And through its American Survivalist Project, it’s adding steady, high-margin cash flow to its business model (which we’ll also detail below).

Since it formally launched its original Regulation A+ offering in October 2019, RAD’s shares have appreciated 56%, from $10 per share to $15.66.  When I bought in 2 months ago, it was selling shares at $15.66 with a $1,000 minimum investment.   Today as I record, it’s jumped up to $16.39.   Not a gigantic jump but RAD also offers another unique and huge perk: a guaranteed 5% distribution.

Because RAD is a REIT, it has to return 90% of its profits to its shareholders to qualify for a special tax exemption. And its business model is so reliable, management is comfortable guaranteeing a 5% distribution.

Just let me put in context how huge this perk is…

The rate on the 10-year Treasury note is around 1.4%. So we’re getting paid 3.5 times the yield on the 10-year note to wait for this REIT to potentially go public or get bought out.

In other words, we’re getting paid a dividend that’s almost 4x higher than the 10-year note, and more than double the average dividend yield of the S&P 500 – with the potential to make 10x gains.

The fact that RAD can pay such a high dividend shows how confident it is in its business model. (More on that in a moment.)

REIT distributions are similar to dividends. However, the distribution is considered a return of capital. That means the IRS taxes distributions differently (usually less) than dividends. We recommend you consult your accountant to determine how investing in this deal will affect your taxes.

RAD’s commitment to adjusting the share price to its Value  and guaranteed distributions make it a first of its kind in terms of Reg. A+ offerings.

Now, let’s take a look at how RAD is using this cash to continue growing the business.  Private placements raise cash for companies. So we want to make sure they use the funds to grow and scale. That’s why we look for companies with a proven business model. We want to see that the team has a clear use case and plan for this cash infusion.

RAD is using most of the money it’s bringing in to buy and fix up residential properties, as well as to expand its American Survivalist Project.

As of its last annual filing in May 2021, RAD has $7.4 million in cash assets. That’s spread across around 240-plus residential properties in Texas, Florida, California, and Pennsylvania (thanks to the most favorable tax deed laws in the country). And because of the power of smart leverage, RAD now controls $40 million in real estate assets.

Its goal is to continue expanding its portfolio of properties in growing urban centers of these four states as well as its ASP program in Idaho and other inexpensive rural areas.

Let’s take a closer look at RAD’s advantage in the real estate market.

Like legendary investor Warren Buffett, we want to see that a company has a durable competitive advantage or business moat before pulling the trigger.

For Donald Bren, building coveted communities for the upper-middle class was his bread and butter. He had a vision of “live, work, and play” that took shape across Orange County, California.

RAD also has a simple business model: Buy homes at discount prices in urban areas with growing demand. To find discounts, RAD shops at tax lien or deed auctions.

[Tax liens and deeds aren’t the focus of this issue. But a quick definition if you’re interested: A lien is an official claim filed with the government against a debtor’s property. Liens hold until the property owner pays the amount owed.

Tax deeds are issued when an owner fails to pay associated taxes on a property and grants legal ownership to a government body. These are then sold at auction. Investors can bid on and acquire the property directly for the cost of the back taxes.

Simply put, tax liens provide interest. Tax deeds provide whole properties.]

This is different from buying foreclosures. See, with a foreclosure, the bank is taking back the property because the owner has failed to pay the mortgage. In the wake of COVID-19, foreclosures were largely put on hold.

But tax lien and deed sales are different. Some local governments have given owners more time to pay… but the auctions haven’t stopped. And that means RAD still has ample buying opportunities.

See, buying at tax auctions isn’t anything close to what most people are used to. There isn’t a realtor, or an open house to walk around. The government lists these by parcel number and address. You’d be lucky to even get a street photo of the property.

There can be a ton of hidden problems in the home. And the situation can be made even harder because there are often still people living in these homes.

The whole process is too much for the average person to ever want to consider.   I actually did this process when I started High Return Real Estate.   I purchased 12 properties at a tax sale auction and it ended up being my BIGGEST loss by far in real estate because I didn’t know what I was doing but thought that I did.   Essentially what it came down to was I didn’t have the right team in place to rehab the crappy properties that I bought.   

So that challenge is an opportunity for RAD, because they are experienced and they know what they’re doing.   

Tax auction buyers need to be property savants. They have to size up a property in a matter of moments and know what their max bid is going to be… All at the rushed pace of an auction.

Even so, navigating the confusing world of tax auctions isn’t easy. But RAD’s founders are experts at it. They started and continue to run three funds that explicitly target tax auction sales. And their success with those is why they founded RAD.

Last year, RAD bought roughly $1 million in tax auction properties. After taking possession of these properties, it had them appraised at a fair market value of $1.4 million.

That’s a 40% jump in price without any renovations. This kind of a discount and eye for value is why RAD’s founders spent years perfecting tax auction investing.

Let’s take a closer look at RAD’s second step for success.

We already know RAD won’t buy a property unless it’s offered at a significant discount with plenty of upside. But it also has to make sure that it can find another buyer or a renter.

To do that, RAD only buys in booming markets… That means urban areas with a growing population and/or markets with skyrocketing rental rates.

That’s why RAD has identified Texas, Florida, California, and Pennsylvania as key areas to focus on.

Texas and Florida are among the fastest-growing states in the country… with about 15% growth over the past decade. Growth in California is 6%, about on par with the national average.

While Pennsylvania’s population increase of 1% since 2010 is far below the national average… its rental rates have skyrocketed 8.1%. (Texas’ rates are up 3.1%, Florida’s are up 2.3%, and California’s are up 2.1%.) Plus, Pennsylvania’s tax lien codes are favorable to buyers looking to acquire these types of properties.

And cities like Jacksonville, Florida, and Houston, Texas, have seen rents skyrocket 35% and 24%, respectively.

It all boils down to one thing: There’s no shortage of renters for RAD’s properties. That means these properties can start generating income for RAD and its shareholders as soon as possible.

But there’s more to the RAD story than buying and renting homes in high demand areas. It’s also building what it calls the American Survivalist Project, which we introduced above.

The Survivalist Project stems from Mendenhall’s own desire to have a back-up plan. See, he wanted a plot of land where he could provide for his family even in the event of a massive shift in the American way of life.

This was a hypothetical idea until COVID-19 happened. Shortages of vital goods and mass protests showed that Mendenhall’s idea of a Survivalist Project was well founded… And he heard as much traveling across the country.

During his seminars on tax auction investing, he kept getting questions on his Survivalist Project. Sure, people wanted to make money in real estate… But they also wanted a backup plan in case things got even worse.

Mendenhall’s original 454 acres has grown in size to over 2,000 acres. Complete with farmland, water rights, and opportunities for vacations and hunting… the Survivalist Project is key to our 10x opportunity with RAD.

That’s because RAD leases out 1-acre plots to individuals for $200 per month. For a family, this is a small price to pay for peace of mind. But for RAD, it adds up across its 2,054 acres. In all, RAD stands to make nearly $5 million by leasing the land through its Survival Project.

With just over $7 million invested into the land, RAD will break even on the property within 18 months of it being fully leased out. And after that, RAD is looking at almost pure profit. And it can replicate this process in rural areas all over the country.

What’s It Worth?

To get an idea of what RAD will be worth over the coming years, we have to value its investment and income-producing assets (properties).

As we mentioned above, RAD buys and rehabs properties in urban centers in states like California, Florida, Pennsylvania, and Texas. It also rents properties in these states.

The second group of properties are part of its American Survival Project. These properties are located in rural areas like Idaho.

To value the first group of properties, we’ll use net asset value (NAV). Currently, RAD manages $40 million in real estate assets in the four states where it buys properties at tax auctions.

Now, let’s assume RAD raises the entire $50 million under its Reg. A+ offering. Since it only has to make a 20% down payment on the properties it buys… it can leverage that $50 million to acquire $250 million in real estate.

Remember, this is just from the Reg. A+ offering. As the company grows, it’ll be able to reinvest in new properties and increase its overall market value.

Now, let’s turn to the second group of properties: The American Survivalist Project.

The traditional metric to value income-producing properties is the capitalization (CAP) rate. The CAP rate is the net operating income divided by the land’s market value.

A typical CAP ratio is 10.

Each acre of RAD’s Survivalist Project properties can generate $2,400 in income per year. And if we multiply that by the industry standard CAP rate of 10, we get a value of $24,000 per acre annually.

Across its 2,054 acres, that’s nearly $50 million in land value… generating $5 million in cash flow each year.

RAD can reinvest that $5 million per year into new opportunities… whether that’s into tax auction homes or more acreage for the American Survivalist Project.

Based on RAD’s cash flow projections, my research team I subscribe to, Palm Beach Group,  estimates that the entire company could be worth $1.7 billion over the next five years.

At a $1.7 billion valuation, RAD’s shares would be worth $250.56. That’s 16x from today’s prices.

And this is before accounting for an IPO or buyout from a larger firm like Blackstone or Brookfield.

So not only do we have a chance to make 16x gains on what could potentially be the next U.S. real estate dynasty, we’ll get paid to watch it all play out.

It’s not often that this kind of setup comes around in the pre-IPO market. So let’s get in now before RAD goes public or is bought out by another company.

 

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